To Invest or not to Invest…When, What and Where is the question

 

So, you have some spare cash or just inherited a sum of money, and are wondering where to invest it. Banks are offering about 2%-3% even on large deposits. The Tel Aviv stock exchange has been a roller coaster heading in the downwards direction for most of the past year. So, you decide that real estate would be a good option. Over the last 5 years real estate investments have appreciated between 20%-50% depending on the neighborhood and ROI on rentals have generated between 4%-10% returns yearly.

With real estate prices continuing to rise throughout the country, you wonder why you didn’t invest in an apartment years ago.  Many may ask themselves, with the uncertainty of the world global economic situation and the political unrest in the Middle East, is now the time to invest or should I wait?  Being in the real estate business for over 18 years in Israel, I have seen the prices of apartments rise and fall, but the investors I have worked with over the years have always realized a profit, if they knew when , what and where to buy.

The Israeli real estate market, although affected somewhat by the global situation regarding the very high end properties, has mostly reacted to the simple concept of supply and demand regarding the majority of the real estate market.  Due to the lack of new construction, precipitated by bureaucratic nightmares from the local municipality’s seemingly endless red tape and regulations, the construction of new housing has yet to keep up with the demand of a growing population.

This fact has put second hand properties at a premium and in higher demand. Due to the high demand of an ever increasing population and a shortage of housing, the government , with all its wisdom has , in essence caused prices to continue to rise instead of the opposite .

So, if you are ready to make a move into the real estate market in Israel, here are 4 tips to help the savvy investor find the best opportunities in today’s market.

  1. When to buy? Investors tend to find more “bargains” ( i.e. motivated sellers) in the winter months, when demand slows and sellers ,who didn’t sell in the peak season (between Pesach and Rosh Hashana ) become more motivated and reduce prices.
  2. Should I or Should I not finance the purchase? I highly recommend investors to leverage their purchases allowing them buy two smaller apartments, (financing up to 50%) This allows an investor to buy more properties and thus diversify their risk of owning only one property in a certain neighborhood.  Mortgage rates are very reasonable and fixed mortgages will offer security over the long term, and can usually be paid down over the years if necessary.
  1. What to buy? There are generally two types of investors, the one looking for a good ROI ( return on investment) and the other looking for greater appreciation value down the line.
  2. Those looking for a good return in the immediate future should look for smaller properties ( 2-3 bedroom)  that can be easily rented out to a high demand population, such as student housing or young couples, who cannot yet afford to buy. These apartments stay rented on a consistent basis and depending on location, can generate anywhere from 4%-7% returns. For higher returns but more hassle and turnover, renovated 3-4 room properties are in high demand as short term furnished apartments for tourists in the more popular cities such as Tel Aviv, Netanya and Jerusalem. These units can generate as much as 10%-12% returns but will need a rental management company to handle the bookings and maintenance.
  3. Investors looking for future appreciation may be more interested in properties with building rights, roof rights, or those that are eligible for Tama 38 . This special permit allows the owners in the building to expand, fortify and improve there property and the entire building using a qualified contractor/developer, who then gets the right to add additional floors to the property. Many of these buildings that are eligible are in lower socio economic neighborhoods.

 

Where to Buy?

  1. Location, Location, Location….are the buzz words you will hear from every realtor you work with, but for investors, the best choices may not necessarily be the “prime locations’. Look for neighborhoods that have high rental popularity. Ask your realtor to suggest neighborhoods ”next door” to those that have already appreciated significantly. This will indicate potential appreciation opportunities. A good realtor can give you a comparable market analysis of properties in a certain neighborhood so you can make informed decisions and make offers based on factual data.

In summary, ”buy low…sell high” is as true in the real estate market as it is in the stock market. There are still plenty of great opportunities for the savvy investor and plenty of room for appreciation if they know where to look.   Be sure the property has both good rental potential, as well as future appreciation value. Check out the facts with the neighborhood realtor,and ask all the right questions. They are the ones with a finger on the pulse in their area. The best advice I can give any investor is to research the facts and work with people they trust.

 

This article was written by Alyssa Friedland, an 18 year veteran real estate broker with RE/MAX. She and her husband own the largest RE/MAX office in Jerusalem, with 26 agents and are connected to a National network of over 120 RE/MAX offices Nation wide. She is available for consultation regarding real estate investment opportunities throughout the country.

RE/MAX Vision 02-673-1661   www.remax-capital.com